Expert views - September trade deficit narrows sharply

MUMBAI (Reuters) - India's trade deficit narrowed to a two-and-half-year-low in September as merchandise exports posted a third straight month of annual growth, provisional government data showed on Wednesday, strengthening the outlook for the rupee currency.

COMMENTARY

SIDDHARTHA SANYAL, INDIA ECONOMIST, BARCLAYS, MUMBAI:

"This number strongly reinforces our expectation of a sub-$60 billion current account deficit for the full year, even after accounting for some pick up in gold imports in the next two months due to festive season demand. A lower current account deficit will also ease the RBI's constraints on rupee related concerns, which would help in reducing the exchange-rate led inflation pressures and in turn help in limiting expectations over repo rate hikes."

DARIUSZ KOWALCZYK, SENIOR ECONOMIST EX-JAPAN ASIA, CREDIT AGRICOLE CIB, HONG KONG:

"We believe that gold imports are much higher but have gone to the underground economy and will still show up in balance of payment, just not on the current account. Imports contracted in a sign of weak domestic demand."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI:

"This is not a sustainable number. A more sustainable one would be about $10-$12 billion on an average every month. But in general it is clear that first half current account deficit would be the peak and for the whole year India will undershoot the finance minister's projection of $70 billion and that is positive news.

"Along with this, the capital inflows are picking up primarily through the banking sector and an improvement in the trade deficit means the rupee is on a firmer footing which will make India better placed to weather any reduction in asset purchases by the U.S. Fed. The next step for RBI will be to allow the oil companies to return to the market and only after that they will be able to assess the rupee's stability."

RADHIKA RAO, ECONOMIST, DBS, SINGAPORE:

"Strong September trade numbers confirm expectations of a significant improvement in the current account position in 2Q FY13/14, likely more than halved from quarter before. Nascent pick-up in growth in the Western economies and boost to competitiveness from rupee depreciation were supportive of export receipts in September, while non-oil imports likely eased on lower gold purchases.

"The latter came under the hammer as volumes fell sharply on fresh restrictions and lack of clarity in the RBI trade regulations. This spells good news for the annual current account shortfall as well, but the outlook is partly clouded by upcoming seasonal rise in gold purchases and steady fuel/coal/iron ore purchases."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

"Lowest trade deficit in 30 months is strongly positive for the currency. Moreover, there has been a strong growth in the order of 11 to 12 percent of exports for the last three months which is supportive of growth and employment as most of the export sectors are labour intensive. This will give policymakers more comfort to focus on growth/inflation dynamics rather than currency stability."

SHIVOM CHAKRAVARTY, ECONOMIST, HDFC BANK, NEW DELHI:

"I think there is slight base effect in exports, and they could grow 6-8 percent in second half. The underlying story of compression in trade deficit is very much intact.

"There will be some improvement in overall current account balance and that kind of scenario should translate into decreased pressure on INR. We expect INR to trade in 61.00-63.50/$1 over the next 3-4 months. The current account balance for the second quarter is likely to be 2.9-3.0 percent.

"I think what you saw in the second quarter was INR depreciation, and the problem came from capital flows, which fell quite sharply. In the second half, dual improvement in the capital account and the current account is expected and you're already seeing INR stabilised.

"The key risk in the near term is the debt ceiling negotiation. And, the QE 3 taper, which has been postponed and not shelved."

SAUGATA BHATTACHARYA, CHIEF ECONOMIST, AXIS BANK, MUMBAI:

"I think we will end up with a current account surplus or a very small current account deficit in the September quarter, but it is unlikely that we will get such low trade deficit numbers in the months going ahead as gold imports may pick up as we enter the festive and marriage season.

"But overall, we still may end up with an encouraging current account deficit number of $50-$60 billion for the full year which may give the RBI some comfort to cut the MSF (marginal standing facility) rate further. RBI may have been led by the better-than-expected trade deficit number to cut the MSF rate this week."

SURESH KUMAR RAMANATHAN, REGIONAL HEAD OF RATES AND FX STRATEGY, CIMB, KUALA LUMPUR:

"Imports are off as expected largely given the weakness in the INR but exports are still holding up, so a ray of light ahead. The deficit is still large but the weakness in imports are squarely blamed on the INR volatility, so I don't see this low import growth lasting for long.

"It could be that halting of gold shipments may be a factor that curbed the imports. I don't expect any monetary policy easing yet on the October 29 meeting, but we could see some form of signalling of easing in future meetings.

"The new RBI governor seems to have better acumen of financial markets which is why we have seen some stabilization in the INR, better signalling as well, which the markets like."

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI:

"The September data has come as a big positive surprise. However, we do not expect such a trend to continue given that seasonally the ongoing quarter tends to witness higher trade deficit.

"We expect a slight pickup in gold imports in H2 given the festive season."

ARVIND CHARI, FIXED INCOME FUND MANAGER, QUANTUM ASSET MANAGEMENT, MUMBAI:

"Export pick up is a good sign and we should see some more momentum on that going forward. We are hearing of some pick up in gold imports in late September and in this week. Hence the trade deficit numbers could be slight higher for October."

G. CHOKKALINGAM, MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER, CENTRUM WEALTH MANAGEMENT, MUMBAI:

"Import of gold crashed in September but that is not going to be a trend in future so take this trade data with a pinch of salt.

"These numbers just cannot be repeated. Next on watch would be corporate earnings which would be really bad. Also on watch would be April-September fiscal deficit numbers.

"Rating agency comments after seeing fiscal numbers of first half would be interesting too."

BACKGROUND

- India's current account deficit grew less than expected in the June quarter and is tipped to ease in coming months as a pick-up in exports and lower gold imports improve the trade balance. The deficit for the three months through June was $21.8 billion, or 4.9 percent of gross domestic product, driven by sluggish exports and high gold imports in April and May before the government hiked tariffs on the metal to a record 10 percent.

- Silver imports are on track to hit a record high this year as the wedding and festival season drives up buying of the precious metal instead of the traditional gold, made scarcer and dearer by official measures aimed at cutting the trade gap.

- Gold imports are expected to pick up sharply in October after purchases dropped to a fraction in the preceding two months. However, they would still be half of the usual monthly average.

- India will have to rein in spending and cut subsidies to meet its fiscal deficit target, the country's finance minister said on Monday, underlining that an austerity drive will not be blown off course by an election due next year.

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